Sprint Nextel Corp posted a wider quarterly loss but fewer customers defected from the No 3 U.S. mobile service, which started selling Palm Inc's
popular Pre phone in early June.

Sprint, whose shares fell 3 percent, said on Wednesday that its numbers were helped by a slight increase in phone upgrades, which an analyst saw as the result of its exclusive Pre launch.

It was in the right direction but it was only incremental, said Soleil Nelson Alpha Research analyst Michael Nelson, citing Sprint's loss of 991,000 postpaid customers, who pay monthly bills and typically commit to two years of service, during the quarter.

This was down from 1.25 million in the first quarter and compared with the average expectation for a loss of just over 962,000 postpaid customers, according to six analysts contacted by Reuters.

The company's Boost Mobile unit appeared to gain strong traction with its unlimited prepaid calling plan as Sprint said it added 938,000 prepaid customers in the quarter, ahead of four analyst estimates that ranged from 500,000 to 900,000.

This clearly indicates that the Boost is selling well, said Nelson referring to a unlimited service plan from Sprint's prepaid unit Boost Mobile.

Chief Executive Dan Hesse said he was not satisfied with customer losses, but pointed out that the quarter represented Sprint's best performance in seven quarters.

The company said that it still expects subscriber losses to narrow in 2009 compared with 2008 and forecast positive free cash flow for the year.

For the second quarter, Sprint's loss widened to $384 million, or 13 cents per share, from a loss of $344 million, or 12 cents a share, in the same quarter a year earlier.

Excluding unusual items, Sprint's loss would have been 4 cents a share compared with analysts' average expectation for a loss of 1 cent a share, according to Reuters Estimates.

Revenue fell more than 10 percent to $8.1 billion from $9.05 billion a year earlier in line with analysts' average estimate, according to Reuters Estimates.

Sprint shares fell 14 cents to $4.45 in premarket trading.

(Reporting by Sinead Carew; Editing by Derek Caney)